Associated Press photo by J. Scott Applewhite

What is a tax increase?

Politics | Democrats are dodging a deficit deal, but some Republicans in Congress are willing to raise revenue by closing loopholes for the wealthy in exchange for lower rates. The problem: That may break their signed pledge against tax hikes

Issue: "Border bandits," Dec. 3, 2011

WASHINGTON-With a deadlocked so-called supercommittee on deficit reduction only days from its deadline, Senate Majority Leader Harry Reid expressed dismay on Nov. 15 that the panel seemed far way from any agreement. The Nevada Democrat was hoping, he told reporters, for "a lot of hand holding and hugs and pats on the back and we'd head off to Thanksgiving."

But Reid knows better about the ways of Washington. Even in a congressional session with a theme of deficit reduction, spring and summer showdowns over the budget yielded more drama than significant results. Both parties kicked down the road the hard work of government reduction, leaving it to this 12-member panel to make a $1.2 trillion deficit deal by Nov. 23 and achieve the fiscal breakthrough that has eluded President Barack Obama and House Speaker John Boehner.

So Reid and others were not really surprised when the committee produced more headlocks than handholding, with Republicans calling for spending cuts and Democrats wanting tax increases. But what has been surprising is who has been most willing to compromise. With Obama blaming Republicans for continuing "to stick with their rigid positions rather than solve the problem," a growing number of Republican lawmakers are the ones showing flexibility.

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Sen. Pat Toomey, a Republican from Pennsylvania and a panel member, laid on the table a plan that would include $300 billion in increased tax revenue. Boehner, who insisted at the panel's birth that tax increases were "off the table," even publicly endorsed Toomey's plan as a "fair offer." The reason? It would raise tax revenues but not tax rates: Most of the new tax revenue would come from reforming the tax code to limit deductions for high-income earners, and the plan would include cutting the top tax rate from its current 35 percent to 28 percent.

Rep. Jeb Hensarling, R-Texas, explained to skeptical House Republicans in a closed-door meeting on Nov. 15 that this significant shift would help offset the pending expiration of the tax cuts enacted under President George W. Bush. The scheduled Jan. 1, 2013, end of those tax cuts will raise the top tax bracket rate to 39.6 percent. Hensarling argued that tax increases through limiting deductions would be a good trade-off for lower overall rates.

"They haven't thrown me out, so I guess I got a good reception," Hensarling told reporters after the meeting.

This tax concession impressed at least one Democrat. "The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts," said Sen. Dick Durbin, D-Ill. "Therein lies the core of an agreement."

This advice fell on deaf ears. Democrats on the supercommittee have been unwilling publicly to lay significant entitlement reform on the table. Instead, several Democrats on the panel admitted they are not unified. "The fact of the matter is, Democrats have not coalesced around a plan," said panel member Rep. James Clyburn, D-S.C.

Democrats may not want to endanger their main campaign narrative of championing entitlements. Any supercommittee plan endorsed by Democrats to cut or reshape Medicare and Social Security would put Democrats on the defensive on the 2012 campaign trail. The victim of this strategy could be the supercommittee. "It's been a long week waiting for a counterproposal," said Senate Republican Leader Mitch McConnell of Kentucky.

Regardless of the supercommittee's endgame, the legacy of this debate could be the fraying of Republicans' long-held stand on taxes. Republican leaders have spent November trying to reframe the argument by favoring lower tax rates and the elimination of certain tax deductions.

"It is important for us to, in my opinion, reform the tax code," Boehner said. "We've got the highest business tax rate in the world. We've got a personal tax system that's so complicated it costs Americans about $500 billion a year to comply with the current tax code. And I think that reforming taxes, both on the business side and personal side, will make America more competitive and produce more economic growth."

This break from a two-decade-old party orthodoxy has also occurred outside the supercommittee. Sen. Tom Coburn, an Oklahoma Republican with a record as an opponent of tax hikes, released a report Nov. 13 arguing that, through the current tax code, the federal government annually provides nearly $30 billion of tax giveaways to millionaires. The report stated that eliminating these deductions for millionaires would reduce the deficit by $285 billion over the next decade.


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